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Termination of contract for serious breaches only

Dominion entered into an agreement for lease with Debenhams for a retail unit yet to be constructed. The agreement obliged Dominion to construct the unit and also provided for Dominion to make three staged payments to Debenhams at specific points during the project. The agreement stated that if either party failed to perform any of its obligations under the agreement then the other party could terminate by serving notice. Dominion failed to make the second staged payment on time and Debenhams served notice to terminate two days later. Dominion immediately attempted to make payment which Debenhams refused to accept on the basis that time was of the essence and that it had been entitled to terminate the contract following Dominion’s failure to pay on time.

The court found that Debenhams was not entitled to terminate the agreement. Although the wording of the termination clause suggested that any breach would entitle the other party to terminate, the agreement contained a multitude of obligations, some of which were very minor and it could not have been intended that any breach, no matter how minor, would entitle the other party to terminate. A reasonable commercial person would understand the clause to relate only to serious breaches of the agreement. The court also commented that Dominion had been upfront with Debenhams and had explained that the payment was likely to be late and that Debenhams had not given Dominion any warning of its intention to terminate in the event of late payment.

Compare jurisdictions: Arbitration

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